Lawyers and Bloggers and Dell, Oh My
The scourge of publicly traded high-tech companies, class-action lawyer Bill Lerach, has launched a new lawsuit against Dell, accusing the PC maker of accepting hundreds of millions of dollars in payments from Intel to be an exclusive partner, and then wrongfully accounting for the funds.
Lerach said the payments amounted to $250 million per quarter in "likely illegal" rebates. A Dell spokesman said the company isn't commenting because it never comments on open lawsuits. Intel is named as a codefendent and is commenting.
Chuck Mulloy, an Intel spokesman, said:
In addition, asked whether either the U.S. Securities and Exchange Commission or the U.S. Attorney for the Southern District of New York, both of which are investigating Dell's accounting and financial reporting, has contacted Intel or asked it for information on Dell, Mulloy said no, they had not.
But Intel is only one part of the Lerach lawsuit against Dell.
The 254-page complaint also accuses the company of misstating warranty accruals and reserves. The suit specifically points to defective motherboards in some Optiplex servers in 2003 and 2004 that led to a $307 million charge against warranty reserves, and cites it as an indication of improper accounting.
And the complaint also depicts the months-long saga of bloggers, including Jeff Jarvis, who railed against Dell's products and service while, allegedly, top Dell executives (including then-CFO James Schneider in a private lunch with Prudential analysts and then-CEO Kevin Rollins in a private dinner with Bear Stearns analysts) were reassuring investors that the company had its problems under control and was positioned for market-leading growth.
(In all, the complaint mentions Jarvis nine times -- including a few references to news articles that quoted his anti-Dell blog items during the time period.)
How far the lawsuit goes will probably not be decided for months if not years. And, judging by Intel's position toward Lerach's claims, the suit could have a very uphill battle. But what was first positioned by the company as an energized return by Michael Dell as CEO to may have quickly turned into a week he'd probably just as soon forget.